M&S, FTSE and deconstructing decline
The fallout of M&S from the FTSE is clearly very symbolic, although the writing on the wall has been getting larger for decades. This business was once a true world leader, not just in retailing but in the merits in paternalistic business management. It set standards others could only dream of. But that was long ago and the decline since has been slow and painful, spanning a succession of leadership teams all of which promised much, spent lots but delivered little. The current team is no different. When a business places more importance on lowering costs than driving sales the alarm bells should be ringing.
The issues of Marks go way beyond getting some fashions wrong or not buying enough jeans. They are systemic – a loss of culture and the values that held it together. This is all about allowing the brand and what it means to simply get lost. The idea of M&S being a family food shop has led to its acquisition of 50% of Ocado – the tail wagging the dog and likely to lead to the dilution of its core food offering as it seeks to integrate the two. The idea that M&S needs to attract young (or younger) clothing shoppers is similarly ill conceived. Shoppers never want to shop in their Mother’s or Grandmother’s stores. Its core customer is now in her early 60s and it is imperative M&S defends its core business before thinking about any layers beyond.
Clothing has been the biggest issue and its decline has been inevitable and totally predictable. For years, the company has sought to alleviate margin pressure by cost cutting. Successive culls of highly skilled, knowledgeable staff led to progressively sub-contracting to third parties the core skills that made M&S the state-of-the-art retailer it once was. Moreover, systematic pressure sent up the supply chain to its suppliers has led to a progressive diminution of product quality. Try finding any natural fibre on the womenswear floor today. Its core customers are not interested in lower prices if it means inferior, irrelevant product.
Marks and Spencer’s decline has been slow and painful. Some might say it really began when Sir Rick Greenbury set his heart on making £1 billion profit, an ambition that was duly delivered in 1997 but at a heavy price, including subsequently his own position. He helped introduce a level of politics in the business that was very unhealthy. His anointed successor was Peter Salsbury – a very able retailer who was not really suited to be CEO – lasted less than two years and was succeeded by the company’s first external appointment as Executive Chairman, Luc Vandervelde, a Belgian retailer secured at great cost for a large transfer fee in February 2000.
Marks’ performance had deteriorated steadily since the £1 billion profits bubble. Together with CEO Roger Holmes, another external appointment, a range of initiatives did restore performance to a degree but there was one symbolic decision which in my view ranks at least alongside today’s fall from the FTSE. Vandervelde and Holmes sold the monolithic Michael House Baker Street head office for £115m. By the time the deal actually completed, Stuart Rose had taken over but the sale of such an immensely valuable asset for such a giveaway price was, I think, disposing of much more than just bricks and mortar.
Archie Norman has certainly injected a leaner, more fleet of foot style of business at M&S. He has also separated food and clothing to a larger than ever extent, a possibly portentous move. Being more agile and moving faster is positive but only if it’s in the right direction. It’s not.